Purpose – The purpose of this paper is to aim at assessing the impacts of the embedded nature of ethnic Chinese businesses on the management of business failure in China ventures. Design/methodology/approach – Upon reviewing the key literature on ethnic Chinese transnational business ventures and, in particular, the concept of embeddedness, the paper proceeds with a description of the data based on ethnographic research among ethnic Chinese entrepreneurs in both Singapore and Malaysia and a brief portrayal of the development of their investments in China since the 1980s. In subsequent sections the empirical findings are first presented and then analyzed. The conclusions reflect on the changing nature of the embeddedness of the ethnic Chinese in diverse but shared legacies. Findings – The experience of business failure in China contributes to a reorientation among the ethnic Chinese towards both their national communities and each other – and finally affects their transnational business strategies. This process of re-embedding identity is intertwined with the diverging ethnic politics of the Singaporean and Malaysian nation states and results in the redefinition of a shared identity. Originality/value – While the literature on the ethnic Chinese business community is focusing on those factors that are conducive to business operations, little attention has been paid to the manners in which business failure is dealt with. In this paper, business failure will be investigated in terms of the impact emanating from the embeddedness of ethnic Chinese businesses in complex economic, social-cultural, and political configurations.